The Curborough Consortium said it had withdrawn its bid with the government following "talks" with the Department for Communities and Local Government (DCLG).
The pull-out follows the rejection of a planned eco-town bid in Selby, North Yorkshire last month by council leaders and speculation that developer Gallagher will pull out of the Bedfordshire eco-town bid.
The Lichfield eco-town was slammed last month by the government's 'independent challenge panel', which claimed that the development would merely add to traffic congestion.
Shadow minister for housing, Grant Shapps, said: "Gordon Brown's approach to housing is now so discredited that developers are opting to pull themselves out of the Government-backed scheme and go it alone with their planning applications.
"We believe that more housing is urgently needed and that it's essential that all homes are environmentally friendly in the future.
"The only way to achieve this is by working with, rather than against, local communities. Labour Ministers need to understand that they can't simply sit in Whitehall and mandate top-down Whitehall targets to get the job done," he said.